Clear Vitality ETFs Take a Hit, however Cash Retains Flowing In

Investors lost a whole bunch of bets on manufacturers of solar modules and wind turbines this year. Your answer: to double.

A year ago, Green stocks and the funds that track them recovered enormously from a pandemic faint after the market recovered. Solar panel and wind turbine companies were among the firms driven by a surge in investors and consumers Renewable Energy Demandalthough many are small, unprofitable businesses.

This year, returns are behind the broader stock market. This is due in part to past share price history and uncertainty about the Federal Reserve’s interest rate rate and the potential impact of its actions on growth stocks.

Exchange-traded funds that track renewable energy indices have seen double-digit declines so far this year.


iShares Global Clean Energy ETF

has fallen 18% since December;

Invesco GmbH.

is popular

Solar ETF

has seen a decrease of 17%.

Nevertheless, money continues to flow. According to data from Refinitiv Lipper, professional asset managers and retailers have invested $ 6.2 billion in green energy ETFs so far this year. Inflows are on track to eclipse last year’s record of $ 7.2 billion.

Index makers and asset management firms say large declines in prices do not reflect investors’ desire to bet on green companies for now.

“We see continued demand in this area,” said Ari Rajendra, senior director of strategy and volatility indices at S&P Dow Jones Indices.

At BlackRock, the world’s largest asset manager, Clean Energy Funds have seen $ 2.7 billion in inflows and $ 1 billion in a European clean energy fund so far this year, according to FactSet. The interest was so great that S&P had to expand its clean energy benchmark, used by BlackRock funds, to solve the problem of having too much money in mostly small, difficult-to-trade companies.

Such changes don’t happen often, said S & P’s Rajendra, but strong investor demand justified revising the index from just 30 to 82. Among other things, the company lowered the criteria for listing shares.

Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, believes renewable energy stocks, from solar panel makers to alternative battery manufacturers, will transform transportation and other facets of everyday life.

A solar farm in Maine. Because clean energy stocks are expensive, they and the funds that replicate them can be more susceptible to market or political changes.


Robert F. Bukaty / Associated Press

Mr. Gerber has invested more client money in Invesco’s Clean Energy Fund, adding to the total $ 446 million in ETF inflows this year. He avoids oil stocks, which are among the top performers in the stock market this year.

“The more speculative the stock, the higher the valuation. But in this market people are more interested in fantasy than reality, ”said Gerber. “So at Solar you also have a bit of imagination.”

Invesco’s solar ETF rose 233% in 2020 while BlackRock’s global clean energy fund rose 140% – by far the best years of all time for both as green stock valuations skyrocketed.

Although both funds have declined over the year to date, valuations are up. Invesco’s solar ETF trades at a forward price / earnings ratio of 36, according to FactSet, up from 21 for the S&P 500.

Meanwhile, clean energy companies trade at a 70% premium over traditional energy companies based on the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization, a standard valuation measure, Strategists at

Bank of America

said. They found that rating is down from its highs earlier this year, but is still well above the five-year average.

Because stocks are expensive, they and the funds that track them can be more susceptible to market or political changes. For example, its pull could wane if the Fed starts raising rates earlier than expected, which takes some of the luster from growth stocks.

Or volatility could increase if there are hiccups for a $ 1 trillion infrastructure plan President Biden and some US Senators agreed. Green stocks rebounded last year after Mr Biden won the November presidential election as investors bet the new administration would accelerate the US transition to wind and solar and away from fossil fuels.

Investors are already experiencing some of this volatility. In the past few weeks, clean energy stocks have rallied alongside growth stocks. Invesco’s solar fund is up nearly 11% over the past month, while BlackRock’s ETF is up 2.2%.


What do you think for Exchange Traded Funds in 2021? Join the conversation below.

The willingness of investors to continue to invest money in this part of the market shows that they are positioning themselves for a potential longer-term realignment of the energy sector and the energy industry.

Rene Reyna, Head of Thematic and Specialty Product Strategy at Invesco, said the expectations are based on the belief that the technology will eventually lower the cost of batteries, solar panels and other green efforts to the point that it will gain wider adoption and big profits become. In this sense, clean energy is the “trade of hope,” he said.

Construction of a wind farm in New Mexico last year. Clean energy companies trade at a 70% premium over traditional energy companies.


Cate Dingley / Bloomberg News

Write to Michael Wursthorn

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